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Small-cap stocks can be incredibly lucrative investments because their lack of analyst coverage leads to frequent mispricings. However, these businesses (and their stock prices) often stay small because their subscale operations make it harder to expand their competitive moats.

Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. Keeping that in mind, here is one small-cap stock that could amplify your portfolio’s returns and two best left ignored.

Two Small-Cap Stocks to Sell:

Zeta (ZETA)

Market Cap: $3.29 billion

Co-founded by former Apple CEO John Sculley, Zeta Global (NYSE:ZETA) provides software and data analytics tools that help companies market their products to billions of customers.

Why Is ZETA Not Exciting?

1. Gross margin of 60.4% is below its competitors, leaving less money to invest in areas like marketing and R&D

2. Track record of operating losses stem from its decision to pursue growth instead of profits

3. Low free cash flow margin of 9.8% for the last year gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders

Zeta is trading at $13.87 per share, or 2.3x forward price-to-sales. Dive into our free research report to see why there are better opportunities than ZETA.

Leggett & Platt (LEG)

Market Cap: $1.29 billion

Founded in 1883, Leggett & Platt (NYSE:LEG) is a diversified manufacturer of products and components for various industries.

Why Do We Steer Clear of LEG?

1. Annual sales declines of 1.5% for the past five years show its products and services struggled to connect with the market

2. Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable

3. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

Leggett & Platt’s stock price of $9.25 implies a valuation ratio of 8.4x forward P/E. Check out our free in-depth research report to learn more about why LEG doesn’t pass our bar.

One Small-Cap Stock to Watch:

Photronics (PLAB)

Market Cap: $1.31 billion

Sporting a global footprint of facilities, Photronics (NASDAQ:PLAB) is a manufacturer of photomasks, templates used to transfer patterns onto semiconductor wafers.

Why Are We Positive On PLAB?

1. Operating profits increased over the last five years as the company gained some leverage on its fixed costs and became more efficient

2. Performance over the past five years was boosted by share buybacks, which enabled its earnings per share to grow faster than its revenue

3. Free cash flow margin grew by 9.7 percentage points over the last five years, giving the company more chips to play with